Natural Gas Trading on Futures Market Horizon / Mercantile Exchange to File Proposal This Month

Article excerpt

A proposal to sell natural gas as a commodity on a national futures market is being drafted by the New York Mercantile Exc hange, The Journal Record has learned.

The proposal is expected to be filed with government regulatory agencies later this month, confirmed Rosemary T. McFadden, president of the exchange.

"We're in the process of working into a futures contract for natural gas trading," she said in a telephone interview from her New York office. "We expect the filing to occur later this month."

The exchange will seek authorization from the Federal Energy Regulatory Commission (FERC) to allow transportation of gas through pipelines to and from Katy, Texas, located 22 miles west of Houston.

The application will seek a certificate of public convenience and necessity under Section Seven of the Natural Gas Act for an interchange service of natural gas by interstate pipelines at Katy . Itwill also seek 311 authorization under the Natural Gas Policy Act for intrastate pipelines to transport gas to and from Katy, said Brad Leach, gas research analyst with the exchange.

Authority to offer the contract will be sought from the Commodities Futures Trading Commission, which regulates the commodity trading.

Gas will be sold f.o.b. facilities in Katy, the same as contracts for crude oil are sold on the exchange for delivery at Cushing, Okla. The proposal will call for contracts of 10,000 mmbtus (million British thermal units) of gas, McFadden said.

The essential factors of a futures market for natural gas are present with the deregulation and restructuring of the natural gas industry coupled with the growing spot market for gas, McFadden said.

"We see the same potential" that was present when the exchange offered its futures contract for crude oil in 1983, McFadden said. The primary mechanism of the gas futures contract would be hedging against price risks.

Segments of the natural gas industry, including newly emerging marketing and trading groups, approached the exchange about the formation of a futures contract for gas, she said. …